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The one glimmer of hope to emerge during the latest "worst week" for Gordon Brown and the Labour Government is a sign that the economy is staging something of a fightback. It looks increasingly likely that output in the UK will start to grow again in the third or fourth quarter of this year - as predicted by Alistair Darling in the Budget in April.
What a shame then for the Chancellor that this first bit of economic news that could be described as "good" rather than simply "not as bad" came as his boss was desperately trying to force him out of his job.
A key survey showed a return to growth in May after more than a year of recession just as the Prime Minister was trying, and failing, to parachute his old ally Ed Balls into the Treasury in Darling's place.
The all-sector purchasing managers' index (PMI) rose to 50.4 - the first time since March last year it was above the 50 cut-off between boom and bust. It was seen as something of a watershed in the City, a sign that things are actually improving rather than just getting worse more slowly, although political wrangling seemed to be of more interest than economic recovery to those around the Prime Minister.
Mortgage lending, house prices and consumer confidence have also shown signs of life and the FTSE 100 index has rallied hard since its low of 3512 in March.
The improving outlook has prompted a host of upgrades to growth forecasts in the City, including from the usually bearish Capital Economics today, as shown in the graph above.
They, like many others, expect a return to growth in the third quarter of this year after five quarters of decline since the second quarter last year.
But, as forecasters at Capital Economics acknowledge, the recovery is likely to be sluggish and could be short-lived. Caution is required, and for every positive, there is a negative to counter it, not least because the level of activity looks set to remain low for some time.
Take the PMI figures. Much of the improvement came as firms that drastically cut output over the winter restarted production to replenish now-depleted stock levels rather than because of growing demand.
Mortgage lending is still too low to support a proper recovery in house prices, and further falls look certain, while consumer confidence will remain fragile for as long as unemployment is rising and businesses are going bust.
And a strong recovery is unlikely while debt levels are so high. Households and businesses are paying back loans rather than splashing out, and a long and painful period of tax rises and spending cuts will follow the next general election as the Government of the day repairs the battered public finances.
Ric Traynor, executive chairman of insolvency specialist Begbies Traynor, warns "next year will feel far worse than this year" because of swingeing job cuts and the number of firms going bust.
"It won't be a V-shaped recession," he says. "It will be a long, hard road back to where we were which could take 10 years."
Property guru Mike Slade, the chief executive of Helical Bar, is predicting a "www-shaped" recession - a long period of bouncing along the bottom.That would be a disaster for Brown and Darling, as indeed it could be for an incoming Tory Government. Brown's best chance at the next general election is a strong "V-shaped" bounce but the complete disintegration of power at the top of Government - highlighted by Darling's refusal to move when asked by Brown last week - is now posing a serious threat to such a recovery as well as to the Government itself.
There can be little doubt that the abortive attempt to replace Darling with Balls was far more about saving Brown's own political skin than the economy. While praising Darling in public, he was knifing him in private - and this was nothing to do with the expenses scandal. If it was, why was Darling offered the job of Home Secretary?
And on top of this shambles was the bizarre appointment of TV celebrity Sir Sugar to the House of Lords as enterprise tsar. A serious man for serious times, no doubt.
Disastrous election results, the botched cabinet reshuffle and an unwanted chancellor have left the Prime Minister weakened and sapped confidence in the Government. If this leads to a loss of confidence in the economic fightback, which the recent slump in the pound suggests, Brown only has himself to blame.
Reader views (3)
Of course the UK economy apears to be perking up a bit. The Government is force feeding it on massively increasing government debt. This amounts to pumping about £10 Billion a month into the economy so of course it looks a bit better. But rather like a patient on steroids the key question is, not does he look ok, but is he ok, and what happens when he comes of steroids.
Taking that on board we also need to recognise that £10 Billion per month has to be repaid with interest and that will destroy much if not all of our economy.
- Bill G, Slough, 10/06/2009 11:50
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THE EVENING STANDARD REALLY DOES DIG DEEP TO PROVIDE US WITH THE REAL INSIGHT ON TODAYS VERY STRANGE SOCIETY. I READ ELES WHERE TONIGHT THAT SIR GREEN PAID A MILLION POUNDS FOR A SINGER AT A CELEBRATION OF HIS. ELESE WHERE I READ HOW THE ECONOMIC MELTDOWN HAS RUINED MANY LIVES. MANY OF OUR MPS SEEMED TO HAVE THEIR HAND IN THE THE TILL. SOME CELEBS, SPORTSMEN , BANKERS ARE EARNING MORE IN A FEW WEEKS THAN OTHERS EARN IN A LIFETIME. THE COUNTRY IN DESPERATION TURNS TO FRINGE PARTIES.
WHERE ARE OUR POLITICIANS OF CONVICTION WHATEVER THEIR POLITICAL OPINIONS GOING TO SPEAK OUT. SO FAR THERE IS JUST A RESOUNDING SILENCE, EXCEPT FOR A FEW PLATITUDES.
I SUGGEST THEY TRY THE COMMENTS COLUMNS OF THE EVENING STANDARD FOR A START.
- Alan Green, Woodford Green, 09/06/2009 16:53
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Just to compare notes, I used to live in the UK but now live in Australia. The Australian Government gave cash to taxpayers recently. My wife and I received 900 pounds between us. The Australian economy avoided a technical recession (2 quarters of nefative growth) probably due to this. Late last year Australian pensioners (even those living overseas) received at least 500 pounds each.
Compare this to the mean UK Government's approach - they don't even uprate the pensions of former National Insurance contributors living in countries such as Australia and Canada. To be fair? they do index state pensions to the EU and selected countries such as the US, Israel and the Philippines. What is the logic? We are advised that unfunded civil service pensions are "fully costed and fully affordable". The National Insurance Fund has a surplus of 50 billion pounds - fact.
Why then is uprating denied to selected countries? Why are Gurkhas now allowed to reside in the UK but if they stay in Nepal their UK state pension is not uprated each 6 April. Surely this is fully affordable? All political parties are invited to state their policy on this issue, assuming they have one.
- Richard Lane, Kariong, NSW, Australia, 09/06/2009 09:29
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